SunnyOh

Treasury yields held their ground on Friday after a week that saw the traditional haven boosted by anxieties centered on trade clashes between the U.S. and major trading partners such as China and the European Union.

Investors scooping up U.S. government paper to take shelter from turmoil in global stocks have anchored bond yields, giving a modest lift to prices. Financial markets are grappling with fears that tariff disputes could—if they erupt into a full-blown trade war—prove a major headwind for the global economy.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y, +0.12%
was up by 0.4 basis point to 2.902%, trimming its weeklong decline to 2.4 basis points.

The 2-year note yield
TMUBMUSD02Y, +0.31%
the most sensitive to interest-rates expectations, was up 0.8 basis point to 2.549%, but down 0.8 basis point this week. Meanwhile, the 30-year bond yield
TMUBMUSD30Y, +0.10%
was mostly unchanged at 3.045%, and showed little change for the week.

Bond prices move in the opposite direction of yields.

What did market participants say?

The European Union said it would begin implementing tariffs on $3.2 billion in U.S. imports on Friday. That comes amid escalation of tensions between China and the U.S. after President Donald Trump at the start of the week threatened to impose as much as $400 billion in levies on Chinese goods, drawing a swift retaliation from Beijing. In a recent tweet, Trump threatened 20% tariffs on cars imported from the European Union.

Fears of a tit-for-tat conflict have kept a steady flow of investors into haven assets like U.S. government bonds against a backdrop of volatility in stocks and other assets perceived as risky. The bullish undertone in Treasurys was balanced by the Federal Reserve’s hawkish stance. Fed officials including Chairman Jerome Powell have underlined the need for gradual rate increases despite fears the global economy could take a hit from a trade war.

But a few market participants say should a trade war break out, it could push the Fed to slow its rate-hike trajectory. Fed Chairman Jerome Powell noted this week that though trade uncertainty may not be showing up in economic data, it was figuring in the thoughts of corporate executives, who have started to harbor doubts whether to roll out business investment against a deteriorating global outlook.

What did market participants say?

“We have a Fed that is pretty well committed to continuing to raise rates, but an administration that is continuing to push towards a global trade war. In the end, we expect that these threats of tariffs will eventually lead to negotiated trade deals that avoid the worst-case-scenario for the economy and inflation, and as such we are bearish on the market,” said Ward McCarthy, chief financial economist for Jefferies, in a note.

“Protectionist trade policy and the threat of a full-blown trade war are the key risks at this juncture. A significant slowdown in trade would materially deteriorate the global growth outlook with repercussion for risky assets, with [emerging-market] assets being especially exposed,” wrote Elia Lattuga, cross asset strategist at UniCredit Bank in London.

How are other assets doing?

Stocks rebounded slightly on Friday. The blue-chip Dow Jones Industrial Average
DJIA, +0.35%
snapped its losing streak of eight sessions. The S&P 500
SPX, +0.01%
and the Dow
DJIA, +0.35%
finished up by more than 0.2%.

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